Europe Mulls Major Step Towards “fiscal union”

Merkel has the EU by the short hairs. It appears she will keep pressing for ambitious reforms, and why not? Without the support of Berlin, the EU fails…

(Reuters) – When Jean-Claude Trichet called last June for the creation of a European finance ministry with power over national budgets, the idea seemed fanciful, a distant dream that would take years or even decades to realize, if it ever came to be.

One year later, with the euro zone’s debt crisis threatening to tear the bloc apart, Germany is pushing its partners for precisely the kind of giant leap forward in fiscal integration that the now-departed European Central Bank president had in mind.

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Posted over at Ritholt’z blog. Another must-read from Mauldin.

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“The yield on the 10-year Treasury note has fallen to record lows, briefly dipping below 1.5 percent on fears the global economy is headed for another downturn, but investors should buy now, as yields will keep falling, noted bond investor Robert Kessler, head of the Kessler Companies, tells Barron’s.

The yield — which moves inversely to a bond’s price and serves as a good indicator for an investor’s sense of risk — has fallen amid an intensifying European debt crisis, which has sent investors worldwide racing to U.S. government debt in a safe-haven play.

Despite rock-bottom interest rates, the U.S. Treasury is seen as a good place to stash money until blue skies return.”

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MADRID (Reuters) – Spain, the latest combat zone in Europe’s long-running debt wars, urged the euro zone to set up a new fiscal authority to manage the bloc’s finances and send a clear signal to markets that the single currency project is irreversible.

Prime Minister Mariano Rajoy said the authority would also go a long way to alleviating Spain’s woes which, along with the prospect of a Greek euro exit, have threatened to derail the single currency project.

It is not the first time a European leader has proposed creating such an authority but the problems and the size of Spain – a country deemed too big to fail – have prompted EU policymakers to hurriedly consider measures such as creating a fiscal and banking union ahead of a EU summit on June 28-29.

Germany, the paymaster of the euro zone, and others insist such a move can only happen as part of a drive to much closer fiscal union and relinquishing of national sovereignty.

Overspending in the regions and troubles with a banking sector badly hit by a property crash four years ago have sent Spain’s borrowing costs to record highs and pushed the country closer to seeking an international bailout.

The risk premium investors demand to hold Spanish 10-year debt rather than German bonds rose to its highest since the launch of the euro – 548 basis points – on Friday.

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NEW DELHI (Reuters) – It had been another brutal day for the rupee on the foreign exchanges as India’s economic crisis escalated and, travelling home from a visit to Myanmar last week, Indian Prime Minister Manmohan Singh summoned journalists on his plane for a briefing.

The one statement he had prepared for the media that night, however, concerned allegations of corruption leveled against him and his cabinet ministers – not the economy.

Quizzed on the Indian currency’s precipitous slide to record lows, Singh blamed the global economic slowdown and the euro zone’s emergency, and he voiced hope that the G20 would sort these troubles out at a summit in Mexico later this month.

Two days later, when gross domestic product (GDP) data showed India’s growth rate had plunged to its lowest level in nine years, Singh’s finance minister likewise pointed a finger at “weak global sentiments”, as well as the central bank for its tight monetary policy.

But as warning lights flash on India’s economic dashboard – with manufacturing output and consumer demand now fading as well as corporate investment, fiscal and trade deficits ballooning and inflation stubbornly high – few buy the line that it’s somehow not the government’s fault.

“There is so much denial, but almost all of the problems in India are self-inflicted,” said Rajeev Malik, senior economist at CLSA Singapore. “The Indian situation is … an outcome of policy incoherence, a government that’s asleep.”

Economists say New Delhi’s policy inertia and the absence of significant reforms to sustain growth have now turned India’s slowdown from a cyclical one to something that is structural or systemic.

The country is now stuck with lower growth than its potential: not the “Hindu rate of growth” of about 3.5 percent that dogged the state-stifled economy before big-bang reforms two decades ago, but a 21st-century version of that, which Malik calls “growth with a government-incompetence discount”.

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This chart and commentary will get you close to the magnitude of Europe’s problems.

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“Mark Dow is a hedge fund manager and a former IMFer, who now has must-read blog.

Given his IMF experience, and the growing talk of whether Spain will need help in some way, his recent post IMF and Spain – putting on the face paint is pretty great.

If things get bad enough and/or the country is systemically important enough, the IMF will “war game” contagion effects. They will also get as prepared as they can for “the call”, the moment when the authorities of the member country formally ask for assistance in putting together a program.”

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The bank of England stated that they are considering a stimulus package; in other words it is a matter of when not if.

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Soros says that Germany has some time to reverse course over the next three months. He also felt that Greece will vote in a new government that will except austerity measures.

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While the ESM fund is to come on line again in July; for the moment Merkel is rejecting any kind of joint debt issuance by the EU nations.

Under ‘no circumstances’ Germany will not support Euor backed bonds.

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I say it is still a seafe heaven, but is subject to liquidity issue world wide. So extreme down ticks should be bought imo.

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A little while ago Ben Bernanke responded to suggestions that the Fed needed to do more — in particular, that it should raise the inflation target — by insisting that this would undermine the institution’s “hard-won credibility”. May I say that what recent events in Europe, and to some extent in the US, really suggest is that central banks have too much credibility? Or more accurately, their credibility as inflation-haters is very clear, while their willingness to tolerate even as much inflation as they say they want, let alone take some risks with inflation to rescue the real economy, is very much in doubt.

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(Reuters) – Throughout his presidency, Barack Obama hasn’t exactly been a friend to marijuana users.

Sure, he has acknowledged smoking pot as a young man, but he has disappointed marijuana advocates by opposing its legalization, regulation and taxation like alcohol.

And the Justice Department’s occasional crackdown under his administration on medical marijuana dispensaries, which 17 states and the District of Columbia allow, has angered others.

So now, with Obama facing a stiff challenge from Republican Mitt Romney in the November 6 election, it’s ironic that his chances of winning the key state of Colorado could hinge on marijuana legalization, supported by a growing number of Americans.

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All eyes on Threadneedle Street this week as the City waits (prays) for the Bank of England to fire up its magic money machine at the June gathering of the monetary policy committee.

Apart from the economic repercussions of the MPC’s deliberations, the two-day meeting gives it a shot at making history and becoming the first body to summon the fortitude to resist the charms of Christine Lagarde, beguiling head of the International Monetary Fund.

By Thursday we should know if her siren calls for the UK to make further interest rate cuts and create more electronic money have been fended off by the nine-strong committee, although the odds on that are shortening. Poor economic news on Friday (May’s PMI survey was a shocker) has been described by Deutsche Bank’s George Buckley as a “game changer”. Meanwhile, Citi’s Michael Saunders muses: “We continue to expect that worsening economic prospects will prompt the MPC to expand QE [quantitative easing] markedly further – to a total of about £500bn – and that the next instalment will occur soon. On balance, we forecast the MPC will expand QE by another £50bn at the June meeting.”

Surely the Bank’s nonet of middle-aged men wouldn’t consider frustrating the French temptress

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(CNSNews.com) – The Republican-controlled House of Representatives, which took office in January 2011, has enacted federal spending bills under which the national debt has increased more in less than one term of Congress than in the first 97 Congresses combined

n the fifteen months that the Republican-controlled House of Representatives–led by Speaker John Boehner–has effectively enjoyed a constitutional veto over federal spending, the federal government’s debt has increased by about $1.59 trillion.

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President Barack Obama told campaign donors in Chicago and Minnesota that Europe’s sovereign debt crisis is largely to blame for the slowest month of U.S. employment growth in a year, seeking to counter an issue weighing on his re-election bid.

“We’re not where we need to be; we’re not there yet; you saw that in today’s jobs report,” the president said at a Chicago fundraiser, the fourth of six yesterday in the Midwest. “A lot of that’s attributable to Europe and the cloud that’s coming over from the Atlantic. The whole world economy has been weakened by it, and it’s having an impact on us.”

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China’s non-manufacturing industries grew at a slower pace for a second month, as export demand moderated and new orders in construction and real estate contracted, an official survey indicated.

The purchasing managers’ index fell to 55.2 in May from 56.1 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in a statement today in Beijing. A reading above 50 indicates expansion.

Today’s data adds to evidence that growth in the world’s second-biggest economy is slowing after a government manufacturing report showed the weakest reading since December. Brent crude tumbled below $100 a barrel on June 1 for the first time in almost eight months on concern that China’s industrial expansion is moderating and unemployment in the U.S. is rising.

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The European Union is targeting July 9 as the start date for its permanent euro-area rescue fund, the 500 billion-euro ($620 billion) European Stability Mechanism, an EU official said.

Parliaments across the 17-nation currency union must ratify the fund before it becomes available to counter the financial crisis spawned in Greece. Until it receives 90 percent of its expected capital allotment, officials must turn to the temporary European Financial Stability Facility, a 440 billion-euro fund with 240 billion euros available.

JPMorgan Chase & Co. (JPM) trader Bruno Iksil, known as the London Whale because his bets this year were so large, has been a leviathan of a risk-taker since at least 2010, a person with knowledge of the matter said.

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This is big, down 10% on Monday, unless of course they say something else tomorrow.

German Chancellor Angela Merkel hardened her opposition to joint debt sharing in the euro region as President Barack Obama singled out Europe’s leaders for not doing enough to arrest the financial crisis.

With Europe’s debt crisis cited last week for canceled IPOs, weaker-than-expected Chinese manufacturing figures and a rise in the U.S. jobless rate, Merkel rejected joint debt issuance in the 17-nation euro area as a solution, saying “under no circumstances” would she agree to Germany-backed euro bonds.

Now, some “come along and ask for euro bonds, saying all we need are equal interest rates and everything will turn out all right,” Merkel said in a speech to members of her Christian Democratic Union in Berlin yesterday. Instead, what’s needed is an economic overhaul to tackle the lack of competitiveness in Europe, she said.

Merkel, the head of Europe’s biggest economy and the largest contributor to bailouts for Greece, Portugal and Ireland, is the pivotal player in efforts to resolve the crisis now in its third year. As Spain struggles to avoid becoming the next country to call for a rescue and the euro slides near a three-year low against the dollar, Obama added to pressure from the European Central Bank, France and Italy to do more to halt the spread of contagion.

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